Well, it looks like the RICO cannabis lawsuits aren’t going to happen anytime soon. as an update to This post Writing in 2020, the Ninth Circuit just confirmed the dismissal of two RICO claims brought by a cannabis employer.
Background to the case of Shulman v. Kaplan
As a quick recap, plaintiff Francine Schulman took advantage when recreational marijuana was legalized in California and began growing hemp. At some point, she needed financial support and guidance, so she partnered with defendant Todd Kaplan. They and their various business entities entered into agreements, which Schulman ultimately claims were used to defraud her of her assets and licenses.
Shulman sued in California’s Central District, a federal court, because two claims related to RICO violations and two other claims related to violations of the Lanham Act (both federal laws). RICO, or the Racketeer Corrupt Organizations Act of 1970, is a federal law that provides a civil cause of action for actions performed as part of an ongoing criminal organization (in addition to criminal penalties). We’ve written quite a few posts about RICO, but suffice it to say, it allows plaintiffs claiming loss of property value to file a civil suit for triple damages plus attorneys’ fees against any “person” or “enterprise” that has a part in any pattern of “extortion activity.” ::
RICO states that it is “unlawful for any person through a pattern of racketeering activity . . . to acquire or maintain, directly or indirectly, any interest or control in any enterprise engaged in, or activities affecting interstate or foreign commerce.” Conspiracy to do the same is prohibited. 18 USC § 1962 (b), (d).
Through an early motion of denial, Judge Perot of Central District denied Shulman’s two claims in RICO, stating that she could not sue under RICO because it would provide her with compensation for actions that were clearly unlawful under federal law.
Ninth Circuit opinion
On January 18, 2023 opinion and orderThe three-judge panel unanimously upheld Judge Beirut’s ruling. They held that Schoemann lacked the capacity to bring RICO claims because, in order to establish legal standing under the law, the plaintiff must show: “(1) that his alleged harm is to his business or property; and (2) that his harm was in violation of RICO, which would require the plaintiff to establish direct causation.” However, because Schulman’s “business or property” entailed the cultivation, sale, and marketing of cannabis—which is illegal under federal law—her “harm was not Something that can be treated under federal law:
Looking at RICO as a whole, Congress clearly did not intend “business or property” to cover cannabis-related trade. When Congress enacted RICO, it explicitly defined “extortion activity” to include “manufacture, import, receive, conceal, buy, sell, or deal in cannabis.” with him in any other way.” 18 USC § 1961(1)(D); 21 USC §§ 802, 812. Because RICO’s definition of racketeering activity necessarily includes dealing in cannabis, it would be inconsistent to allow a business that is actively engaged in the cultivation of cannabis and may recover damages under RICO for damage sustained in this work.”
The commission even went so far as to compare cannabis to heroin due to its illegal federal status:
Indeed, had we substituted a drug like heroin for cannabis for the purposes of our analysis, the conclusion seems clear: Congress could not have intended to allow a heroin dealer to recover RICO damages from someone who, by mail and wire fraud, has stolen a shipment of heroin. Otherwise, RICO would protect the same diverse conduct it was intended to combat. For these reasons, we believe the appellants lack the legal right to bring an action under RICO.”
In fact, the Ninth Circuit asserts something similar to the illegal steroid defense: Because the law specifically includes cannabis-related commerce within the definition of racketeering, the courts’ hands are tied and they can’t help. While this has been the general trend for all of RICO’s claims in the space, this most recent opinion shows that things aren’t going to change anytime soon.